HTS and FTZ Update
Michael Leightman
Partner, Indirect Tax Services
Customs and International Trade and US VAT Practices
26 March 2012
HTS Update
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HTS and FTZ Update
Harmonized Standard
► The GRIs, 4- and 6-digit nomenclature categories, and associated
notes (not including additional U.S. notes) in chapters 1 through 97
reflect the international nomenclature of the Harmonized Commodity
Description and Coding System, pursuant to the Harmonized System
Convention
► Administered by the World Customs Organization (WCO)
► Effective for the United States as of January 1, 1989
► Harmonized Tariff Schedule of the United States (HTSUS)
► Changes to the international nomenclature and certain
classification decisions taken by the WCO are reflected in
changes to the HTSUS
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What is the HTSUS?
► Harmonized Tariff Schedule of the United States (“HTSUS”)
► Goods entering the United States must be classified according the
HTSUS
► Consists of 10-digits
► The first 6-digits represent the international HS number
► Duty rate is provided at 8-digits
► 9th and 10th digits are for U.S. statistical purposes
► Provides information and additional rules regarding qualification for
and application of preferential trade programs and 4 additional US
Rules of Interpretation
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Overall organization of the HTSUS
► Table of Contents
► General Rules of Interpretation (GRIs)
► Additional U.S. Rules of Interpretation
► General Notes (Free Trade Agreements)
► Notice to Exporters
► The Main Body of the HTSUS
► Sections, Chapters, Headings, and Subheadings
► Appendixes – Chemical, Pharmaceutical & Intermediate Chemicals for Dyes
► Statistical Annexes – Country Codes, Customs Districts & Port Codes
► Alphabetical Index
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Main body of the HTSUS
► The HTSUS is divided into 22 Sections
►
►
►
►
►
►
Sections I to IV cover the agricultural and food sectors
Section V is for basic mineral products
Section VI is for chemical products
Section XI covers textiles and apparel
Section XVI is for machinery and electrical equipment, including computers
Section XVII includes all vehicles, including spacecraft
► Sections are subdivided into 99 Chapters
► Chapters are subdivided into Headings
► Headings are subdivided into Subheadings
► Most Sections and Chapters have "Notes" which provide dispositive
instructions for classifying goods
► There are also subheading Notes regarding classification within
subheadings (also dispositive)
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Other information in the HTSUS
► General Notes
► Instructions for interpreting various duty rate columns
► Abbreviations and definitions
► Rules for West Bank and Gaza originating goods
► Lists of preferential programs and their symbols
► Extensive enumeration of the rules of preferential programs
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Trade preference programs
► Possible symbols noted under “Rate of Duty - Special” in the HTSUS
A, A*or A+
B
C
E or E*
IL
J, J* or J+
CA/MX
K
L
D
R
JO
SG
CL
MA
AU
P or P+
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Generalized System of Preference
Automotive Products Trade Act
Agreement on Trade in Civil Aircraft
Caribbean Basin Economic Recovery Act
United States - Israel Free Trade Area
Andean Trade Preference Act
North American Free Trade Agreement
Agreement on Trade in Pharmaceutical Products
Uruguay Round Concessions on Intermediate
Chemical Dyes
African Growth and Opportunity Act
United States-Caribbean Basin Trade
Partnership Act
United States - Jordan Free Trade Area
United States – Singapore Free Trade Agreement
United States – Chile Free Trade Agreement
United States - Morocco Free Trade Agreement
United States – Australia Free Trade Agreement
Dominican Republic-Central America – United States
HTS and FTZ Update
GN4
GN5
GN6
GN7
GN8
GN11
GN12
GN13
GN14
GN16
GN17
GN18
GN25
GN26
GN27
GN28
GN29
Ethanol:
Importation and FTZ
Considerations
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WHAT IS FUEL ETHANOL?
► Ethanol is an alcohol fuel produced from the fermentation of simple
sugars. Most ethanol in the United States is produced from corn. In
other countries, sugar cane or other plants are common feedstocks.
► The main steps to ethanol production are as follows:
► The feedstock is processed to separate fermentable sugars.
► Yeast is added to ferment sugars.
► The resulting alcohol is distilled.
► The distilled alcohol is dehydrated to remove any remaining water.
► To render the anhydrous alcohol undrinkable a denaturant (such as
natural gasoline) is added.
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GASOHOL
► Pure, 100% ethanol is not generally used as a motor fuel;
instead, a percentage of ethanol is blended with unleaded
gasoline (a mixture called “gasohol”), the most common
blends are:
► E10 - 10% ethanol and 90% unleaded gasoline
► E85 - 85% ethanol and 15% unleaded gasoline
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Ethanol Production and Demand
► Production and demand for ethanol in the U.S. has soared
to new heights in the last 5 years, according to the latest
available data released by the Energy Information
Administration (EIA) and the Renewable Fuels
Association (RFA).
► US Production of ethanol in 2011 reached over 13 billion
gallons. That is an increase of approximately 170% over
2006 production.
§Source: U.S. Energy Information Administration
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Global Expansion of Ethanol
§
2011 World Fuel Ethanol Production (Millions of Gallons)
Millions of Gallons
§
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North & Central America
South America
Brazil
European Union
Europe
Asia
China
Canada
Australia
Africa
14,401.34
5,771.90
5,573.24
1,199.31
1,167.64
889.7
554.76
462.3
87.2
38.31
Total
30,145.70
Source: Renewable Fuels Association
HTS and FTZ Update
Importing Ethyl Alcohol (Ethanol)
► The applicable Harmonized Tariff Schedule (“HTSUS”) classification
are as follows:
► 2207.10.6010 - Undenatured ethyl alcohol of an alcoholic strength by
volume of 80 percent vol. or higher; for nonbeverage purposes.
► The applicable rates of duty set forth in the HTSUS are:
► General rate of duty- 2.5% ad valorem
► Special (preferential) rates of duty- Free; or
► 2207.20.0010 - Ethyl alcohol and other spirits denatured, of any strength.
► The applicable rates of duty set forth in the HTSUS are:
► General rate of duty- 1.9% ad valorem
► Special (preferential) rates of duty- Free
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Additional Duties and Taxes
► The general and the special rates of duty both contain two footnotes,
these footnotes state:
1. Imports under this subheading may be subject to Federal
Excise Tax (26 U.S.C. 5001(applicable), 26 U.S.C. 5041(not
applicable) or 26 U.S.C. 5051(not applicable)).
– 26 U.S.C. 5001
– Rate of tax
► (1) In general. There is hereby imposed on distilled spirits produced in
or imported into the United States a tax at the rate of $13.50 on each
proof gallon and a proportionate tax at the like rate on all fractional
parts of a proof gallon.
- Applies to ethyl alcohol intended for use in beverage and spirits for
consumption.
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Additional Duties and Taxes
2. For ethyl alcohol, see subheading 9901.0050, which states in pertinent part:
► Ethyl alcohol (provided for in subheadings 2207.10.60 and
2207.20) or any mixture containing such ethyl alcohol (provided
for in heading 2710 or 3824) if such ethyl alcohol or mixture is to
be used as a fuel or in producing a mixture of gasoline and
alcohol, a mixture of a special fuel and alcohol, or any other
mixture to be used as fuel (including motor fuel provided for in
subheading 2710.11.15, 2710.19.15 or 2710.19.21), or is
suitable for any such uses…
► This secondary duty is 14.27 cents per liter or 54 cents per
gallon.
► NOTE: Was effective until January 1, 2012
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Trade Agreements
► Bilateral Trade Agreements
► U.S. – Israel Free Trade Agreement and the North American Free
Trade Agreement allows ethanol that is fully produced with
feedstocks from those countries to enter the U.S. duty-free
► Unilateral Trade Agreements
► Caribbean Basin Recovery Act and the Andean Trade Preference
Act allow ethanol produced in those countries to enter the U.S.
duty free.
► Certain conditions apply.
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CARIBBEAN BASIN RECOVERY ACT (CBERA)
DUTY PLANNING OPPORTUNITIES
► CBERA Country Feedstocks
► Under this agreement, if ethanol is produced from at least 50
percent agricultural feedstock grown in a CBERA country, it is
admitted free of duty.
► If the local feedstock content is lower than 50%, limitations apply on
the quantity of duty-free ethanol.
► Non-CBERA Country Feedstocks
► The amount of ethanol that can be imported annually duty-free that
is produced from non-CBERA agricultural feedstock is restricted to
60 million gallons or 7 percent of the U.S. domestic ethanol market,
whichever is greater; known as the annual “base quantity.”
► For the 12-month period ending Sept. 30, 2011, the level is 12.955
billion gallons (7% of this amount is 906.9 million gallons)
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CARIBBEAN BASIN RECOVERY ACT (CBERA)
DUTY PLANNING OPPORTUNITIES (cont)
► To qualify, ethanol must be dehydrated in a CBI country.
Dehydration plants that receive hydrous ethanol produced in nonCBI countries (historically Brazil or Europe) can, after dehydration
qualify the ethanol as an indigenous product for duty-free
treatment.
► Local feedstock requirements do exist but do not come into play
until the “base quantity” is reached.
► 30 percent with respect to the next 35 million gallons of dehydrated
alcohol, and
► 50 percent with respect to all dehydrated alcohol.
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TAX CREDIT
► American Jobs Creation Act of 2004
► Volumetric Ethanol Excise Tax Credit (VEETC) - aka “Blender’s Credit”
► NOTE: This tax credit expired December 31, 2011.
► Formerly provided a $0.51 cents per gallon excise tax credit for each gallon of
ethanol blended with gasoline.
► For the ethanol in E10, the tax credit was (.10*.51) =.051 cents per gallon
of E10
► For the ethanol in E85, the tax credit was (.85*.51) =.4335 cents per gallon
of E85
► Blenders of ethanol and gasoline could claim the excise tax credit on Form
720, Quarterly Federal Excise Tax Return.
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Ethanol & FTZs
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FTZ ACT
► The Fifth Proviso prohibits circumvention of taxes or controls on
merchandise imposed by the IRC.
► Alcohol products subject to 26 USC § 5001.
► Manufacturing of alcohol products is prohibited.
► Ruling history exists for ethanol and gasohol.
► Storage is permitted
► Importer remains liable for IRC tax.
► The ethanol can be transferred to a DSP for denaturing without the payment of the
IRC tax.
► Necessary procedures and controls are required.
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FTZ ACT
► Refinery FTZ
► Manufacturing/Blending ethanol and gasoline
► Boundary considerations
► Taxable status of alcohol
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2012 HTSUS Changes for
Petroleum
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2012 Petroleum Changes to the HTSUS
► Ch. 27 Intermediate and Finished Products
► Subheading 2710.11 was replaced entirely by new subheading 2710.12 with a
change in the description to exclude products containing biodiesel
► Products previously under subheading 2710.19 will be split between new
HTSUS codes under that subheading and new subheading 2710.20 to
distinguish between fuels which contain biodiesel and those that do not
► Biodiesel
► Chapter 27 Notes: new definition for biodiesel
► 3824.90.4030 was replaced by two codes under new heading 3826, one for
biodiesel that contains no petroleum oils (B100) and another for biodiesel that
contains more than 0% and less than 70% petroleum oils
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FTZ Update
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Background on FTZ Board Regulations
► Most recent regulations adopted in 1991
► FTZB pursuing path to streamline procedures and reduce
burden for program users
► Past examples include Alternative Site Framework ("ASF") policy
adopted in 2008
► Proposed regulations published December 30, 2010
► Two comment periods provided
► Significant public forum activity held
► MOST provisions will be effective April 30, 2012
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New Regulations: Key Elements
► "Public utility" and "uniform treatment" provisions
► Clarify intent and maximizes use of the program
► Effective date deferred until February 28, 2014
► Improvements to "subzone" process
► Simpler and faster procedures
► Standard 40-day public comment period on subzone applications
► Largely parallel requirements for minor boundary modifications
(MBMs)
► Ordinary five-month timeframe to process subzone applications
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New Regulations: Key Elements (cont)
► Authority for fines
► Covers issues with late annual reports or violations of the uniform
treatment requirements
► "Production" authority
► New definitions will allow for quicker processing of most cases
► Capacity not part of scope
► Other procedures
► FTZB replaces Port Director oversight in a number of matters
► Should streamline certain activities
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What is “Production” Authority?
► Formerly the FTZB reviewed and approved Manufacturing
and Processing cases differently
► Refineries are manufacturing zones due to "substantial
transformation" of components
► "Processing" authority granted in cases where there is merely a
change in tariff classification under zone operations
► "Production" authority is now one in the same
► Advance FTZB approval is required
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What is “Production” Authority? (cont)
► Notification (not application) is submitted to the FTZB
► include only components and products and any trade proceedings for the
materials that the FTZB should be made aware of
► no longer requires detailed answers such as capacity, employment,
forecasted FTZ savings, etc from old application format
► Timing
► 40 day comment period vs. 60 days previously
► Approval within 120 days vs. 12 months previously
► Issues or Controversies may result in the FTZB requiring the full
application under the prior standards
► Temporary / Interim Manufacturing (T/IM) approval may be sought
► no longer limited to specific components or products
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Ramifications for Petroleum FTZs
► Capacity increases
► no longer required (remember the "old" 10% rule)
► Boundary modifications or new sites will be processed
quicker
► beneficial for plant expansions
► Retail Trade in the Zone
► Previous regulations required CBP Port Director to represent the
FTZB in determining acceptability of retail trade matters
► FTZB Executive Secretary now reviews cases to determine
ramifications
► Relevance here is gasoline or diesel fuel supply to employees
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Questions?
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